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Title:Debt sustainability under catastrophic risk: The case for government budget insurance PDF Logo
Authors:Borensztein, Eduardo
Cavallo, Eduardo
Valenzuela, Patricio
Issue Date:2007
Series/Report no.:Working paper // Inter-American Development Bank, Research Department 607
Abstract:Natural disasters are an important source of vulnerability in the Caribbean region. Despite being one of the more disaster-prone areas of the world, it has the lowest levels of insurance coverage. This paper examines the vulnerability of Belize's public finance to the occurrence of hurricanes and the potential impact of insurance instruments in reducing that vulnerability. The paper finds that catastrophic risk insurance significantly improves Belize's debt sustainability. In addition, the methodology employed makes it possible to estimate the appropriate level of insurance, which for the case of Belize is a maximum coverage of US$120 million per year. International organizations can play a role in assisting countries to overcome distortions in insurance markets, as well as in helping to relax internal political resistance to the purchase of insurance policies.
Subjects:Public Finance
Insurance
Natural Disasters
JEL:H30
G15
G22
Q54
Document Type:Working Paper
Appears in Collections:Research Department Working Papers, Inter-American Development Bank

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